LexVODAFONE INTERNATIONAL HOLDINGS B.V. versus UNION OF INDIA & ANR.
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[2012] 1 S.C.R. 573 VODAFONE INTERNATIONAL HOLDINGS B.V. A v. UNION OF INDIA & ANR. (Civil Appeal No. 733 of 2012) JANUARY 20, 2012 [S.H. KAPADIA, CJI, K.S. RADHAKRISHNAN AND SWATANTER KUMAR, JJ.] Income Tax Act, 1961: s.45 read with ss. 195, 201 and 201(1A) - Capital gains B c - Offshore transaction - Territorial tax jurisdiction of Indian tax authorities - Transaction between VIH and HTIL (both companies incorporated outside India) with regard to sale and purchase of the entire share capital of CGP, also a D company incorporated outside India - Revenue seeking to tax the capital gains arising from the sale of share capital of CGP on the basis that CGP held the underlying Indian assets - Held: Indian tax authorities had no territorial jurisdiction to tax the said offshore transaction - Applying the look at test, E in order to ascertain the true nature and character of the transaction, the Offshore Transaction in the instant case, is a bonafide structured FD/ investment into India which fell outside India's territorial tax jurisdiction and, as such, not taxable - The said Offshore Transaction evidences participative investment and not a sham or tax avoidant preordained F transaction. s.9(1)(i) - Income deemed to accrue or arise in India - Expression, 'transfer of a capital asset situate in India" - Held: s.9(1)(i) cannot by a process of interpretation be extended to G cover indirect transfers of capital assets/property situate in India - The legislature has not used the words indirect transfer in s.9(1)(i) - Similarly, the words 'underlying asset' do not find place in s. 9(1 )(i) - Further, "transfer" should be of 573 H 574 SUPREME COURT REPORTS [2012] 1 S.C.R. A an asset in respect of which it is possible to compute a capital gain in accordance with the provisions of the Act - A legal fiction has a limited scope - It cannot be expanded by giving purposive interpretation - The question of providing "look through" in the statute or in the treaty is a matter of policy - B It is to be expressly provided for in the statute or in the treaty - Similarly, limitation of benefits has to be expressly provided for in the treaty - Such clauses cannot be read into the Section by interpretation - Therefore, s. 9(1 )(i) is not a "look through" provision - Interpretation of Statutes. c s. 195 - Deduction of tax at source - Scope and applicability of - Held: The payment in question must have an element of income embedded in it which is chargeable to tax in India - If the sum paid or credited by the payer is not chargeable to tax then no obligation to deduct the tax would D arise - Shareholding in companies incorporated outside India (CGP) is property located outside India - Where such shares become subject matter of offshore transfer between two non- residents, there is no liability for capital gains tax - Jn such a case, question of deduction of TAS would not arise - The E instant case concerns the transaction of "outright sale" between two non-residents of a capital asset (share) outside India - Further, the said transaction was entered into on principal to principal basis - Therefore, no liability to deduct TAS arose -Further, in the case of transfer of the Structure F in its entirety, one has to look at it holistically as one Single Consolidated Bargain which took place between two foreign companies outside India for which a Jump sum price was paid - Acquisition of CGP share which gave V/H an indirect control over three genres of companies evidences a straightforward G share sale and not an asset sale - The case does not involve sale of assets on itemized basis - There was no split up of Jump sum payment, asset-wise, as claimed by Revenue - There was no assignment of price for each right, considered by Revenue to be a "capital asset" in the transaction - Tax H presence must be construed in the context, and in a manner VODAFONE INTERNATIONAL HOLDINGS B.V. v. 575 UNION OF INDIA & ANR. that brings the non-resident assessee under the jurisdiction A of the Indian tax authorities - In the instant case, Revenue has failed to establish any connection with s.9(1)(i) - Under the circumstances, s. 195 is not applicable. ss. 163(1)(c) read with ss. 161 and 9(1)(i) - "Agent" in 8 relation to a non-resident - Held: s. 161 makes a representative assessee liable only if the eventualities stipulated ins. 161 are satisfied - In the instant case, Revenue has in
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